Which 1099 Type Do I Choose?

Available for: Patriot Accounting Basic and Premium and Patriot Payroll Basic and Full Service

When you pay a vendor bill, update vendor payment history, or add a contractor in Patriot, you must choose a 1099 Type for the payment.

The 1099 Type tells Patriot which IRS form and box to use if the payment is reportable at year-end. Patriot supports Form 1099-NEC and Form 1099-MISC payment types.

This article explains which 1099 Type to choose for common vendor and contractor payments.

Before you choose a 1099 Type

Choose the 1099 Type based on what the payment is for.

The 1099 Type does not automatically decide whether the vendor or contractor receives a 1099. IRS reporting rules also depend on the payment amount, payment method, vendor type, tax year, and other factors.

For example, payments made by credit card are generally reported by the payment settlement entity on Form 1099-K, not by you on Form 1099-MISC or Form 1099-NEC.

If you are unsure which 1099 Type applies, check with your accountant or tax advisor.

Do I Use a 1099-NEC or 1099-MISC?

Use Nonemployee Compensation 1099-NEC for payments to independent contractors, freelancers, and other nonemployees for services performed for your business.

Use 1099-MISC types for other reportable payments, such as:

• Rent
• Royalties
• Medical and health care payments
• Crop insurance proceeds
• Gross proceeds paid to an attorney
• Other income that does not fit another 1099-MISC box

Key terms

Form 1099-NEC – Use Form 1099-NEC to report nonemployee compensation. This generally includes payments to independent contractors, freelancers, and other nonemployees for services performed for your business.

Form 1099-MISC – Use Form 1099-MISC to report miscellaneous payments, such as rent, royalties, medical and health care payments, crop insurance proceeds, and gross proceeds paid to an attorney.

Nonemployee compensation – Nonemployee compensation is payment for services performed by someone who is not your employee. This is the most common 1099 Type for businesses that pay independent contractors.

Vendor – In Patriot Accounting, a vendor is a person or company you pay for goods or services.

Contractor – A person who performs services for your business. In Patriot payroll, a 1099 contractor receives nonemployee compensation.

You may need to use both Form 1099-NEC and Form 1099-MISC for the same vendor if you made different types of payments to that vendor.

Example: You paid a vendor for contractor services and also paid rent to the same vendor. The contractor service payment may be 1099-NEC, while the rent payment may be 1099-MISC.

Form 1099-NEC: Nonemployee Compensation

Choose Nonemployee Compensation 1099-NEC for payments made in the course of your trade or business for services performed by someone who is not your employee.

Common examples include:

• Payments to independent contractors
• Payments to freelancers
• Fees and commissions paid for services
• Prizes and awards paid for services
• Payments to an attorney for the attorney’s services
• Directors’ fees
• Other compensation for services performed by a nonemployee

Do not choose 1099-NEC for payments to employees. Employee wages are reported on Form W-2, not Form 1099-NEC.

Form 1099-MISC payment types

Choose one of the following 1099-MISC types when the payment fits that category.

Rents

Choose Rents for rental payments such as:

• Office space rent
• Building or land rent
• Machine or equipment rentals
• Pasture rentals
• Rental assistance payments made to owners of housing projects
• Coin-operated amusements

Royalties

Choose Royalties for royalty payments, such as:

• Oil, gas, or mineral royalties
• Payments for intangible property, such as patents, copyrights, trademarks, or trade names
• Gross royalties paid by a publisher to an author or literary agent, when applicable

Other income

Choose Other income for reportable Form 1099-MISC payments that do not fit another 1099-MISC category.

Examples may include:

• Prizes and awards that are not for services
• Certain taxable damages
• Certain deceased employee wages paid to an estate or beneficiary
• Other miscellaneous income payments

Do not use Other income for contractor services. Use Nonemployee Compensation 1099-NEC for services performed by someone who is not your employee.

Fishing boat proceeds

Choose Fishing boat proceeds for a crew member’s share of proceeds from the sale of a catch, or the fair market value of an in-kind distribution, when the payment meets IRS requirements.

Medical and health care payments

Choose Medical and health care payments for payments made in the course of your trade or business to medical or health care providers.

Examples may include payments to:

• Physicians
• Medical clinics
• Hospitals
• Medical laboratories
• Other medical or health care service providers

Medical and health care payments may be reportable even when paid to a corporation.

Substitute payments in lieu of dividends or interest

Choose Substitute payments in lieu of dividends or interest for substitute payments received by a broker for a customer instead of dividends or tax-exempt interest.

This payment type is less common for most small businesses.

Crop insurance proceeds

Choose Crop insurance proceeds for crop insurance proceeds paid to farmers, unless the farmer has told the insurance company that the expenses have been capitalized.

Gross proceeds paid to an attorney

Choose Gross proceeds paid to an attorney for payments made to an attorney in connection with legal services when the payment is not for the attorney’s own services.

Example: A settlement payment made to an attorney may be gross proceeds paid to an attorney.

Do not use this type for attorneys’ fees paid for the attorney’s services. Use Nonemployee Compensation 1099-NEC for attorneys’ fees paid for legal services.

Payments for legal services may be reportable even when paid to a corporation.

Fish purchased for resale

Choose Fish purchased for resale if you are in the trade or business of purchasing fish for resale and made cash payments to someone engaged in the trade or business of catching fish.

Non-1099 Payment

Choose Non-1099 Payment for payments that should not be reported on Form 1099-MISC or Form 1099-NEC.

Examples may include:

• Payments for goods or products only
• Expense reimbursements
• Payments made by credit card
• Payments made by payment card
• Certain third-party network payments
• Payments to corporations, unless an IRS exception applies
• Personal payments that were not made in the course of your trade or business

Credit card and payment card payments are generally reported by the payment settlement entity on Form 1099-K, not by you on Form 1099-MISC or Form 1099-NEC.

Common examples

What if I chose the wrong 1099 Type?

If you chose the wrong 1099 Type, you can update it in Patriot.

1. Go to: Reports > 1099 Contractor Reports > Update 1099 Type
2. Use the Update 1099 Type tool to select the correct type for the payment.

Important IRS filing threshold note

IRS filing thresholds can change by tax year and payment type. For example, the IRS has stated that for tax years beginning after 2025, the minimum threshold for reporting certain payments on information returns increases from $600 to $2,000, with inflation adjustments beginning in calendar year 2027.

Because thresholds can change, choose the correct 1099 Type based on what the payment is for. Patriot will use the selected 1099 Type when determining which form and box apply.

For complete rules about whether a payment is reportable, review the IRS instructions or contact your tax advisor.

Related articles

• How to Correct a 1099 Type
• Before You Create 1099 Forms
• How to Create, View, File, and Post 1099 Forms

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